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A Decade of Modeling
Financial Vehicles
William F. Frank
Chief Scientist, Financial
Systems Architects
[email protected]
Anil Karunaratne
Lead Architect, Markets
Technology, J.P. Morgan
[email protected]
1
Overview
• Financial Vehicles
– bonds, real estate, royalty contracts, Rembrandts
• Modeling Problems
– multiple, dynamic classification and invention
• Modeling Techniques
– “inheritance”, containers, subtypes, roles,
classifiers
2
Some of The Projects
• Electronic Joint Venture – Bond Evaluator
• Citibank Enterprise Business Model, Foreign
Exchange
• Fidelity Enterprise Architecture, TradeOrder
Management
• CAD Portfolio Recordkeeper
3
Conclusions
• Use Combinations of Small Particles
• Classifiers Reify Attributes and Relationships
• Differentiate Business Run-Time and Design
Time Models
4
What are We Modeling and Why?
Business Community
Implicit Shared
Ontology,
Taxonomy &
Policies
ies
impl
Shared
Communication
models
influenced
by metamodel of
Software
Object Model
realizes a
portion of
Business
Domain Model
(Information
Viewpoint)
5
Model Types by Target Domains
& Languages
Problem
Space
Enables
Reuse
Soluti on
Space
• Intuitive, Implicit Mental Model
–
underlies any successful communication
• Formal Business Domain Model
–
consistent, complete reconstruction of mental
model
• Software Object Model
–
abstraction of compile time and run-time code
6
Typical Typology Transformation
is a
Marketable
Instrument
Marketable
Instrument
is not a
Bond
X
is a
Strip
becomes
Bond
is a
contains
Coupon
derived
from
Stripped
Bond
1
0...
Coupon
7
Why Doesn’t Anybody Stay in
One Place Anymore?
• Key Financial Concepts Are Always Shifting
– to provide
new products (meeting narrower needs means higher
margins) services (intermediation, disintermediation)
• Financial “Objects” are Only Human
Conventions
–
enables their redefinition with no costly hardware
retooling
• These Changes are Technology Enabled
– e.g., strips required automation of records
8
The Business Concept Landscape
Marketable
Entity
is sometimes
is a
is a
is
usually
Real
Estate
Financial
Instrument
Security
X
is not a
s
etime
m
o
s
is
is a
Debt
Instrument
is a
contains
Loan
Debt
Terms &
Conditions
is a
is a
is a
Government
bond
Bond
is sometimes
is sometimes
is a
Zero
Coupon
Bond
9
Features of Financial Language
• Overloaded
– narrow and local contexts for name spaces
• Literally Inconsistent
– based on traditions – e.g., “equity” vs. “fixed income”
• Is a Turf Protection Mechanism
– barrier to entry for outsiders – e.g. – “buy side vs. sell
side”
10
Ugly Meaningless (Multiple)
Inheritance
Bond
Zero Coupon
Municipal
Corporate
High Yield
Yankee Zero
Corporate
Goverment
Government
High Grade
Zero
High Yield
High Grade
Corporate
High Grade
Yankee Zero
Yankee
etc.
11
Problems with Inheritance for
Domain Modeling
• Multiple Inheritance Results in Spaghetti
–
combinatorial explosion
• Inheritance (specialization) vs. Typing
(abstraction)
–
–
with specialization, classes come first,
in typing (abstraction) instances exist first
• Inheritance is Design Mechanism, not Semantic
Relation
–
not about relationships between concepts; about
machine tools building (software class + compiler&OS
= object instance)
12
Bonds as Containers
Bond
Principal
Term
Debt Term
Set
contains a
consistent
set of
tri ggeri ng event
Principal
Terms
Interest
Terms
Security
Terms
Maturity
Terms
13
Factoring of Parts
• Provides More Flexible Model
– by recombination of parts
• Eliminates Multiple Container Types
– differences are between parts selected
• Requires Combinatorial Constraints
– terms come in sets that must be consistent
14
Multiple Subtype Sets Analysis
marketabi lity
Financial
Asset
Fungible
Evidence/Ownershi p
Bearer
Ownership Ri ghts
Registered
Reversible
Tangible
Intellectual
Property
Franchise
Unique
based on
Nontransferable
= Bill, Note
or Bond
Financial
Instrument
Book Entry
Ownership Ri ghts
Debt
Equity
Complex
e.g.
Deri vative
15
Multiple Subtype Sets
• Multiple Inheritance “Upside Down”
• Reflects Rational Classification Methods
 originated with “faceted analysis”
 using discriminators is key
• Finding Meaningful Shared Attributes
– abstract root types do not seem to have any
“attributes” at all
16
"Fully Factored" Role Model
Role wi th respect to one
vehi cle participant role
Tangible
Intellectual
Property
Representation
of Ownership
may play
the role of
Certificate
may play roles as a
lay
yp
a
m
Trading
Vehicle
Financial
Vehicle
sa
a
s
role
may play
roles as a
a
has
Financial
Instrument
is
subject
to
Purchase/Resale
/Trading
Arrangement
represents
a
Investment
Vehicle
Funding
Vehicle
Ownership
Rights
Agreement
17
Roles Versus Subtype Sets
• Roles Factor Attributes and Relationships
• Roles Obviate Need for Multiple Inheritance
• Roles Violate Intuitions about “things”
– act more like “interfaces”
18
Financial Vehicle in a Context
Business
Communication
results in
Business
Transaction
results in
enables
can mention
anything
affects
creates &
refers to
Arrangement
exchanges
participates
in
applies to
everything
may involve
uses
anything
enters
into
Party
defines
Classification
Scheme
owns, deals w ith
Metrics
involves
may apply to
anything
represents
Trading Vehicle
plays the role of
Financial
Vehicle
is a type of
Financial
Instrument
19
Using Financial Vehicle Model on
a Project
• Part of The Complete Ontology
– strict partition of object types
• Factoring Makes this Easier
– relationships replace many hierarchies
• Implementing Roles with Java Interfaces
– requires no common object type
20
Business Classifications
establishes &
maintains
Classification Scheme
acts as
Participant
Party to an Arrangement
participates in
contains
applies to
Arrangement
contains
Term
Domain Object
x
Classification Level
uses
Discriminating Feature
has
contains
is defined by
Classifier
????
Feature Value Ranges
references
21
Business Classifications as RunTime Objects
• Referenced In Arrangements
–
for example, government vs. corporate settlement rules
• May Be Expressed as Query or in Predicate Logic
–
quantified Boolean combinations of attribute values example,
fi[govt(fi) 
le (le is issuer of fi & legal struct(le) = Govt.Agncy)]
• Reifies Attributes and Relationships?
–
requires identification of “features” of objects, not objects
22
Dynamic Templates
Business Design-Time
Concept Design Model
Object
Business Run-time Model
has
Relations
has
uses
Software
Class
Attributes
uses
uses
Classifier
Design
Template
Attributes
Business
Designer
OS/Compiler
Environment
instantiates
Image Activati onTime Si ngleton
instantiates
Software
Object
Business C oncept
Management
Env ironment
is a
Software
Object
Classifier
23
Instantiation as a “Business
Process” Concept
• Classifiers Need Not Map to Software Classes
– the O-O “Creation Myth”
• Business Concepts may be “singletons” OR types
– e.g, the 20 year Treasury is a classifier
• Required: automated support for business concept
design
–
separate from but integrated with run-time operation of
the business
24